Wage subsidy applications open: Here's what you need to know

Friday, 20 August 2021

Businesses can make applications for the wage subsidy from Friday, but accountants are warning there are some things they need to consider.

With the country in level 4, qualifying businesses can claim a two-week wage subsidy paid at a rate of $600 a week for full-time employees and $359 for part-timers.

If any part of the country remains in level 3 or level 4 beyond three weeks, employers may be able to make another claim for another two-week subsidy.

By 2pm Friday more than 47,000 businesses and sole traders had applied for the subsidy. Of that 28,000 had been approved.

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Employers have to retain their employees for the period the subsidy covers and make their best efforts to pay at least 80 per cent of their usual wages.

To qualify, businesses must experience a 40 per cent decline in revenue compared to a typical fortnight, due to the alert level change. They must also have taken active steps to mitigate the financial impact of the lockdown.

Tax is back in the news. Often this means a looming budget or election, as is indeed the case now, with the government’s 2022 budget delivered next week.

Businesses will need to be able to verify the revenue drop.

Robyn Walker, tax partner at Deloitte, said the revenue decline test might be relatively easy for businesses to satisfy if they were unable to operate.

“The test does require more consideration for businesses which are able to operate at a reduced capacity or for businesses who may be unable to work but may still be contractually entitled to payment.”

Walker said a common issue was proving that the decline was the result of a change of alert levels rather than other factors.

“This becomes more important where the revenue reduction is close to the required decline percentage. The [subsidy] requires applicants to prepare and retain evidence that demonstrates how the revenue loss was attributable to the change in alert levels. We strongly recommend your support documentation identifies any other revenue reduction factors to ensure you do have the required revenue decline due to the change of alert levels.”

Walker said the requirement to have taken active steps to mitigate the lockdown impact was unclear, particularly around a requirement to draw from cash reserves.

“While there should be an expectation that businesses look to their own available resources in order to pay staff, when faced with an uncertain period of lockdown it may also be reasonable to not use all cash reserves to pay staff when there are other expenses to be paid and using those reserves may otherwise negatively impact on the ongoing viability of the business.

“It is worth nothing that the review of the management of the wage subsidy scheme by the Auditor-General identified this requirement as ‘not clearly defined’ and noted the subsequent difficulties caused by applicants not needing to provide corroborative evidence at the time of application.”

She said businesses applying for the subsidy should assume that they might need to provide documentation at some point, proving the steps they took to prove eligibility.

While there was added uncertainty in the current lockdown because it involved the delta strain which caused lengthy disruption in Australia, Walker said the labour situation in New Zealand was different.

“With many employers desperate for staff before the outbreak, it seems like less of a risk that mass redundancies and high unemployment will result from the lockdown.

“While employers may be less likely to lay off staff, the reality is that there still needs to be cashflow to pay those staff. We also have a better understanding of market behaviour around lockdowns.

“Some businesses will suffer a permanent reduction in revenue due to a lockdown – you’ll never be able to buy yesterday’s flat white – while other businesses have previously experienced a post lockdown surge in sales where consumers purchase all the goods and services they otherwise would have been acquiring during the lockdown.

“This previous experience is something which businesses should be considering as part of the process of determining whether to apply for the wage subsidy.

“Businesses with a history of a strong sales bounce-back may find banks are willing to be more flexible around additional lending and debt covenants; thereby mitigating the effects of Covid-19 and the need to apply for the [subsidy].”

Social Development and Employment Minister Carmel Sepuloni said employers and self-employed people could encounter delays if the information they provided was not accurate.

“We’ve also got the Covid-19 leave support scheme, which is available to help businesses pay workers who have been told to self-isolate and can’t work from home. The Covid-19 short-term absence payment is also available if your workers have to stay at home while waiting for a Covid-19 test result and can’t work from home.

“The rates for these two payments will be increased in line with the Wage Subsidy increase from Tuesday, August 24.

“It’s important to note that you can only receive one of these three Covid-19 payments from MSD for the named person on the application for the same time period.”

The resurgence support payment, administered by Inland Revenue, is also available for help with things like rent or other fixed costs. Businesses can receive the wage subsidy and resurgence payment.